The non-parenchymal cells (NPC) that reside within an organ play an important role in regulating local immune responses, thereby protecting parenchymal from immune injury. We have found that hepatic stellate cell (HSC), the principle retinoid (vitamin A) storing cells in the body and known to participate in repair and fibrosis during liver injury, also play a crucial role in regulating liver immunity. To investigate the molecular and cellular mechanisms involved, we have created a HSC/islet co-transplantation model in chemically-induced diabetic mice, in which graft survival can be simply monitored by serum glucose levels. The lymphocytes and graft infiltrating cells can be recovered for further analysis. Taking advantage of the availabilities of many transgenic and knockout mouse lines, this model provides a unique tool for us to understand immune responses regulated by HSC. We have observed that co-transplanted HSC exert profound immunomodulatory activities by direct induction of activated CD8+ T cell apoptosis, generation or accumulation of Gr-1+CD11b+CD11clow myeloid- derived suppressor cells (MDSC) and marked expansion of FoxP3+ T regulatory (Treg) cells, that lead to long term islet allograft survival. Our data also showed that MDSC differentiation in vitro is mediated by the soluble factors, including complement component 3 (C3) and factor H (FH) produced by HSC, and retinoic acid (RA) released from HSC play a role in regulating FH binding. We hypothesize that binding of FH on HSC inactivates C3 to generate fragment iC3b, a ligand of complement receptor (CR)3 (CD11b/CD18). Ligation of iC3b with CR3 on myeloid derived infiltrating progenitors leads to development of MDSC, which consequently expand Treg and eliminate activated effect T cells. We have three Specific Aims: Aim 1. To define the function, origin and trafficking patterns of the MDSC generated following cotransplantation of HSC and allogeneic islets. We will: 1) determine the phenotypic and functional characteristics of CD11b+CD11clow MDSC recovered from the grafts; 2) define their origin (recipient or donor) and track their migration pattern; 3) determine whether migration of MDSC to graft draining LN is necessary for MDSC to expand Treg cells. Aim 2. To test the role of C3 produced by HSC in the development of MDSC. We will determine the impact of C3 /iC3b on MDSC development in HSC/islet cotransplant model using C3-/-, CD11b-/- and FH-/- mice. Aim 3. To test the effect of RA on regulating FH in HSC. We will determine the role of FH produced by HSC in the activation of C3 during generation of the regulatory MDSC and the impact of RA on FH production/binding by HSC. Delineation of these mechanistic events during inflammatory activation of HSC and the subsequent generation of MDSC will provide insights into a novel strategy for improving outcomes of transplanted cells including allogeneic islets.